Marijuana-Related Business Prosecuted for Making False Statements to Open Bank Account

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A commentary from pros in the cannabis regulatory space on a recent case: a Marijuana-related business pled guilty last week to opening a bank account under false pretenses.

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Marijuana-Related Business Prosecuted

On August 17, Victor Ngo of Oklahoma City, OK, and his company Friendly Management Group, LLC (FMG) pleaded guilty in connection with a scheme to open a bank account under false pretenses to launder proceeds from marijuana sales. The US Attorney alleges that Ngo made near-daily cash deposits, breaking them up to amounts below $10,000 to avoid triggering the bank’s reporting obligations under federal law -- and laundering over $770,000 in marijuana proceeds through the bank account.

Ngo used FMG to open a bank account by falsely stating that it was a wellness and fitness company, when in fact, FMG engaged in marijuana-related business. Based on this false statement, the bank opened an account it otherwise would not have opened -- allowing Ngo to illegally access the banking system and deposit proceeds generated by the sale of marijuana.

Cases like this one and the case of the former CEO of Ease show why compliance services are badly needed more than ever for a rapidly growing cannabis industry still battling for access to banking services with marijuana still facing a federal Schedule 1 status. The industry can bank legally under the FinCEN 2014 guidelines. Meanwhile, regulations from those FinCEN guidelines and anti-money laundering laws in the Bank Secrecy Act make access to security services and payment technology solutions even more helpful.

Not Having Access To Compliant Banking Solutions

Mark Lozzi, CEO, Confia

Confia is a tech enabled cannabis financial service platform that streamlines the rigor of compliance and its complexity while providing a trusted platform for cannabis operators. Our platform resonates with the cannabis industry as we have provided a solution to directly service its pain points. Unfortunately, one of the biggest pain points– and what can be the most detrimental to business – is not having access to compliant banking solutions. As financial institutions struggle to service the cannabis market, the industry continues to increase its risk profile because they are forced to deal in cash. With Confia, cannabis companies do not need to cloak their operation, they can proudly deposit, operate, and transact as a legitimate, compliant business. We welcome cannabis companies for who they are and what they do, and support them in meeting crucial regulatory requirements.

Friendly Management Group's Fraud Isn't Unique

Scott Solomon, CEO, Operational Security Solutions (OSS)

The type of fraud perpetrated by Friendly Management Group / Cannabless is not unique, but that fact that this type of fraud is  occurring today is less common. During the days of the illicit black market, any Marijuana-Related Business (MRB) wanting to have access to commercial banking would have to “mask” or misrepresent the nature of their business in order to gain access to an account. These practices continued into the days of “gray” markets as banks became more diligent in their AML/BSA duties and specific efforts to “Know Your Customer” (re: KYC / Enhanced Due Diligence protocol to onboard and monitor MRB clientele). So, today we have an environment where there are multiple, legal, and largely accessible banking options for MRBs. While the process can be laborious, MRB onboarding provides a straightforward path for MRBs to have legitimate banking capabilities without the worry of hiding or masking their operations, only to end up facing massive fines and jail time.

MRBs also need to be cautious when selecting a banking provider as there are still many today that are not following the FinCen 2014 guidance, performing transactional reconciliation, or maintaining the appropriate AML/BSA file documentation.  They offer marijuana banking accounts at low rates, minimal fees as they aren’t focused on keeping the accounts clean and open.

Operational Security Solutions (OSS) specializes in secure cash logistics and management. We have experience facilitating introductions to cannabis banking institutions; assisting in the permitting/licensing/account onboarding processes; and securely managing MRB cash in a manner that helps keep bank accounts open and compliant.

Shifting To The White Market

Tim Tofaute, Director of Operations/Security, Operational Security Solutions (OSS)

Even though the industry is moving away from the “gray market” to the “white market,” there are still entities that continue to hold off on making the full transition to transparent and openly legal accounts.  This includes both MRB’s and some smaller local banks / credit unions with policies that fall short of recommended best practices.  Until the industry can establish and accept an industry-wide standard based on auditing best practices, we will continue to see these shortcuts and shortfalls. Just like the “seed to sale” systems for cannabis and cannabis products, the industry needs a dollar-tracking system that follows the dollar from initial investments all the way through to the eventual purchase of a retail product by the consumer and ultimate deposit of the currency into a Federal Reserve Bank. Until we have systems that track cannabis and the dollar – simultaneously - there will always be a shadow of concern limiting the cannabis market from reaching its full potential.

Schedule 1 Status

Thomas Gavin, CEO, CannaTrac

Advancements in technology are increasingly being embraced in the burgeoning legal cannabis market as many operators struggle to find banking and on-site related transaction solutions due to cannabis’ Schedule 1 status. Cash transactions pose a myriad of problems that can endanger both the business owner, the employees, and the consumer. That’s why we created CannaCard®, which is among the first natively-coded, cannabis-related financial apps approved for use on the App Store® under Apple’s updated developer guidelines.